In a rare intervention ahead of Treasurer
Wayne Swan
’s budget next Tuesday, Mr Fraser criticised both sides of politics, declaring they had abandoned a commitment to policies that promoted a fair, competitive and compassionate country.

He questioned the government’s claim that a surplus of about $3 billion in 2012-13, compared with an expected deficit of about $40 billion this year, would lower interest rates. “This is another attempt to try to rationalise what is really a pretty poor political commitment to deliver a budget surplus next year irrespective of the economic circumstances," he told the ABC’s 7.30 program.

Mr Fraser led the central bank from 1989 to 1996. Last year he was appointed chairman of the new Climate Change Authority by the Gillard government.

He said the Reserve Bank should reduce interest rates by 50 basis points to 3.75 per cent at its board meeting today to help weaker parts of the economy. High interest rates have driven up the dollar, hurting manufacturing and lowering prices of goods from overseas. Cautious consumers are spending less in shops.

Prime Minister
Julia Gillard
and Mr Swan argued stridently last week that the sharp fiscal contraction would give the Reserve Bank greater scope to cut interest rates to help struggling sections of the economy.

Climate Change and Energy Minister Greg Combet on Tuesday said while interest rate moves were a decision for the RBA, “many in the community" were looking forward to a cut.

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“After all, that’s what’s going to help small businesses, large businesses and importantly Australian working households," Mr Combet told ABC television on Tuesday.

“The government will certainly be encouraging banks to follow suit."

Mr Fraser said that the government’s bungling of the resource rent tax and wasteful spending programs following the global financial crisis had locked the Gillard government into a fiscal corner and unfairly tarnished the advantages of government spending during downturns.

“They had an opportunity to take a stance in the budget that would be more defensible with delivering a surplus and that was to impose a reason­able super profits tax on mining companies, and unfortunately that’s one of those things that wasn’t achieved very well and it’s a pretty poor substitute for a decent tax on the super profits of mining companies that we’ve got," he said.

“It’s really given the Coalition some free kicks, that here’s a government spending money and wasting money and therefore governments shouldn’t spend, they shouldn’t run deficits, they shouldn’t have debt."

Mr Fraser said he feared both sides of politics had reverted to the position that all deficits and debt were bad and would preside over an era of small government without regard to helping the most needy.

“For a long time I’ve thought Australia could become something of a special country, a demonstration of a country that was competitive, fair and compassionate," he said. “And I’m afraid those hopes have been dashed a bit over the years.

“We’ve had 20 years of uninterrupted growth, solid, sustained growth for 20 years, and yet we’ve got more homelessness, distribution of income and wealth is more unequal now than it was 20 years ago, we’ve got infrastructure, social and economic, that is breaking down and creaking."

Mr Fraser said both Labor and Liberal economic teams had lost their way.

“In terms of my benchmark of competence, fairness and compassion, they’ve both failed, and they’re both failing still, and the more distressing thing is I don’t see a way out from either side," he said.